The federal government will pay $76 billion more for individuals enrolled in Medicare Advantage than it would have for enrollees in the traditional program, according to a new report.
The Medicare Payment Advisory Commission (MedPAC) released its March report (PDF) to Congress this week, where it also weighed in on annual payment changes for providers.
The advisory group said that favorable selection and coding intensity are the largest factors driving up payments in Medicare Advantage. In the former case, individuals with risk scores that overpredict what they'll spend on care enroll in an MA plan, and they generally cost less to cover than an individual in traditional Medicare.
Coding intensity, meanwhile, reflects the likelihood that more diagnostic codes are recorded for MA enrollees. Plans have come under fire for years for "upcoding" enrollees by including diagnoses that are not supported by medical records in a bid to increase payments.
MedPAC noted that fraudulent codes are one piece of the puzzle, as MA plans tend to be more comprehensive in general in documenting diagnoses compared to traditional Medicare.
The commission also said that overpayments in MA can vary significantly between insurers and don't necessarily reflect a plan's profitability or administrative costs.
That said, the higher payouts are borne by taxpayers and can also drive up the costs in traditional Medicare. The commission estimates that Part B premiums will be $11 billion higher due to increased payouts in MA, echoing a study released earlier this week by Congress' Joint Economic Committee.
In addition, the independent body estimates that on average, MA plans will be paid $2,660 each year in rebate payments that go toward supplemental benefits for enrollees.
Rebates for supplemental options have more than doubled since 2018, and MedPAC estimates that they now account for 15% of total payouts to MA insurers. Plans estimate that, on average, they will use about 26% of these rebates to reduce enrollee cost-sharing, and 38% to cover non-Medicare services.
An average of 19% is earmarked to enhance Part D benefits, 7% to reduce Part B premiums and 10% for administrative costs and profit.
"The Commission strongly supports the inclusion of private plans in the Medicare program," per the report. "We hold the goal of meaningful and transparent competition in MA to create incentives for plans to improve quality and reduce costs for beneficiaries and taxpayers."
The industry has pushed back on MedPAC's estimates and called its methodology into question. In a statement, the Better Medicare Alliance (BMA) points to a report from the Centers for Medicare & Medicaid Services that found coding intensity in Medicare Advantage to be closer to the traditional program that MedPAC assumes.
Rebecca Buck, senior vice president of public affairs for BMA, said in the memo that the commission's estimates "estimates do not accurately reflect Medicare Advantage spending, nor do they even attempt to capture the superior value of the program to beneficiaries and taxpayers."
"MedPAC exists to provide Congress with an independent assessment of the Medicare program, along with policy recommendations," Buck said. "But policymaking can only be as strong as the data underpinning it. And there are major flaws with MedPAC’s methodology."
MedPAC: Congress should blunt docs' FY2027 pay cut, maintain hospitals' slated increase
On the provider side, Thursday’s annual MedPAC report to Congress included familiar refrains about increased physician payments and greater leeway for lower-acuity hospital care to shift to outpatient sites.
For clinicians, the advisory group said it was largely satisfied with Medicare beneficiaries’ access to physician services, which so far does not appear to be negatively affected by pay increases that have lagged clinicians’ rising input costs (as measured by the Medicare Economic Index [MEI]). Other indirect measures of clinicians’ revenues and costs, such as compensation levels, “suggest that providing clinician services is profitable,” according to the report.
Physician Fee Schedule payment rates are currently slated to decline in fiscal year 2027 by 1.7% for those in advanced alternative payment models (A-APMS) and by 2.2% for all other clinicians, largely due to the expiry of a one-year 2.5% increase included in the One Big, Beautiful Bill Act.
Taking the impending cuts, projections of “moderate” input cost growth and yet-to-be-impacted beneficiary access into account, MedPAC recommended Congress blunt 2027’s pay hit by increasing payment rates by 0.5 percentage points. This would lead to net declines of 1.2% for clinicians in A-APMS and 1.7% for other clinicians.
“The Commission’s recommendation would be a permanent update that would be built into subsequent years’ payment rates, not a temporary update (like the 2.5% update that applies in 2026 only),” MedPAC wrote in the report. “The Commission maintains that this recommendation balances the need to provide adequate payments to clinicians with the need to limit growth in beneficiaries’ cost sharing and premiums.”
The American Medical Association (AMA), in a statement, said it was “disappointed” that MedPAC did not advocate that Congress directly attach pay increases to the MEI, which would more directly account for input cost increases. Still, the professional association said it welcomed the bottom-line recommendation of an increase over the current law.
“Because of lagging payments, rising inflation and bureaucratic demands, physicians are struggling to keep their practices open and continue caring for their patients,” AMA President Bobby Mukkamala, M.D., said in the statement. “These pressures fall hardest on private practice physicians caring for Medicare patients, especially in rural and underserved communities.”
MedPAC’s analysis of hospitals’ inpatient and outpatient services, largely tied to fiscal year 2024 data, recognized stable care capacity, “mixed” evidence on the quality of delivered care and increased access to capital, all compared with the prior year. On costs, the committee saw slight improvements in hospitals’ Fee For Service Medicare margins from FY2023 to FY2024, and projected more improvement for 2026.
This led MedPAC to recommend Congress stick to the current law for hospitals’ annual pay increase, though it also reiterated a past recommendation that the current approach of monitoring and supporting disproportionate share hospitals be swapped out for its so-called “Medicare Safety-Net Index.”
The advisory panel also acknowledged CMS’ recent expansion of site-neutral payments, and noted “there remain additional opportunities to expand site-neutral policies to align Medicare’s payment rates for similar services across ambulatory settings.” Specifically, it called out clinic services provided in on-campus locations, adding to the outpatient services that could be provided at off-campus locations.
“Another possible direction for site-neutral payments can be found in our June 2023 recommendation, which aligns payment rates for services across hospital outpatient departments, ambulatory surgical centers, and/or freestanding physician offices when safe and appropriate and when doing so does not pose a risk to access,” MedPAC wrote in the report.
The hospital industry has repeatedly advocated against site-neutral payment policies, arguing to policymakers that reduced payments to hospital outpatient departments would not reflect the additional expenses they incur compared to clinics or ambulatory sites.